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Wipro Ltd. (WIPR.BO)
Neutral Equity Research
In line with expectations: Transition mutes growth recovery; Neutral
What surprised us
Wipro posted 1QFY12 revenue of Rs85.6 bn (up 3.2% qoq, in line with GSe)
and net income of Rs13.3 bn (5.6%/1% above GSe/Bloomberg consensus).
While growth in Japan dropped by 25.3% qoq, US also stagnated (flat qoq)
despite the recent SAIC acquisition. Wipro won two large deals in BFSI space
in 1Q with combined value of US$500 mn, indicating that the overall demand
environment still remains positive. The company added 3,198 employees, but
attrition rose to 23.2% (+230 bp qoq). EBIT margins declined by 40 bp qoq to
17.5%. We expect EBIT margins to remain under pressure in 2Q as the full
impact of wage hikes and promotions materializes (from June 1).
Guidance indicates muted organic growth in 2Q: Wipro guided for
2QFY12 IT services revenues of US$1,436 mn-US$1464 mn implying 2%-
4% qoq growth. This includes revenues from SAIC acquisition of US$40
mn implying a flat qoq organic growth guidance. Management stated that
it will take 2-3 quarters for growth to revert back to industry levels,
indicating a muted near-term growth outlook.
What to do with the stock
We maintain Neutral/Sell on Wipro/ADR, but reduce 12-m Director's Cut-based
TP to Rs440/US$9.8 (from Rs512/US$11.4). We reduce our FY12E-FY14E EPS
by 5%-8% on muted near-term earnings outlook due to restructuring and
realignment of sales force to verticals. We believe Wipro will continue to lag
its peers in revenue/EPS CAGR (18%/13%) over FY11-FY14E (vs. 22%/22% for
other large cap peers). We update FY11 numbers for IFRS accounting. Risks:
Faster demand recovery (upside); currency volatility (downside).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Wipro Ltd. (WIPR.BO)
Neutral Equity Research
In line with expectations: Transition mutes growth recovery; Neutral
What surprised us
Wipro posted 1QFY12 revenue of Rs85.6 bn (up 3.2% qoq, in line with GSe)
and net income of Rs13.3 bn (5.6%/1% above GSe/Bloomberg consensus).
While growth in Japan dropped by 25.3% qoq, US also stagnated (flat qoq)
despite the recent SAIC acquisition. Wipro won two large deals in BFSI space
in 1Q with combined value of US$500 mn, indicating that the overall demand
environment still remains positive. The company added 3,198 employees, but
attrition rose to 23.2% (+230 bp qoq). EBIT margins declined by 40 bp qoq to
17.5%. We expect EBIT margins to remain under pressure in 2Q as the full
impact of wage hikes and promotions materializes (from June 1).
Guidance indicates muted organic growth in 2Q: Wipro guided for
2QFY12 IT services revenues of US$1,436 mn-US$1464 mn implying 2%-
4% qoq growth. This includes revenues from SAIC acquisition of US$40
mn implying a flat qoq organic growth guidance. Management stated that
it will take 2-3 quarters for growth to revert back to industry levels,
indicating a muted near-term growth outlook.
What to do with the stock
We maintain Neutral/Sell on Wipro/ADR, but reduce 12-m Director's Cut-based
TP to Rs440/US$9.8 (from Rs512/US$11.4). We reduce our FY12E-FY14E EPS
by 5%-8% on muted near-term earnings outlook due to restructuring and
realignment of sales force to verticals. We believe Wipro will continue to lag
its peers in revenue/EPS CAGR (18%/13%) over FY11-FY14E (vs. 22%/22% for
other large cap peers). We update FY11 numbers for IFRS accounting. Risks:
Faster demand recovery (upside); currency volatility (downside).
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